Business Directories

Fraud probe 'could turn Qatar cold on Barclays'

Dubai, August 30, 2012

By Una Galani

Qatar could turn cold on Barclays. The sovereign fund isn't publicity shy, but a probe by the UK's Serious Fraud Office into its financial links with the British bank has forced it into an unwelcome spotlight.

Whatever the outcome of the investigation, in a region where rich rulers are fiercely protective of their reputations, there is a chance that Qatar might seek to distance itself from the bank.

The probe is a threat to what has been so far a four-year win-win, relationship. A costly capital injection led by Qatar spared the UK bank from a state bailout in 2008. Yet the Libor rate-rigging scandal and the latest probe have been a dampener.

The SFO picks up from an investigation by the UK Financial Services Authority into disclosure of fees paid to Qatar in return for advising the bank's Middle East business.

The stakes are high. Qatar has invested over 5 billion pounds and owns almost 7 percent of Barclays after partly reducing its ownership in 2009. The bank's shares have since slumped, but the fund is making double digit returns on Barclays' reserve capital instruments that redeem in 2019 at the earliest.

The relationship has blossomed further this year. Qatar agreed to co-invest $250 million with Barclays' natural resources private equity investment unit in April. Barclays is also top of Middle East M&A tables for the year to date, thanks to two big advisory tickets from the Qataris.

Qatar won't appreciate the attention, even though there's no suggestion that its fund has done anything wrong. The Gulf state is still reeling from allegations, which it denies, that it paid millions in bribes to win football's 2022 World Cup.

Citigroup's struggle to win business in Abu Dhabi after the sovereign fund's 2007 investment into the US bank soured is a reminder of the dangers of getting on the wrong side of a rich Gulf state.

Qatar won't walk away easily from its juicy returns. And raft of new faces at the bank could also make it easier to hang on. Moreover, the damage will be limited if it turns out that the British lender simply failed to make proper disclosures back in 2008. But in the meantime, Barclays must hope that Qatar doesn't act preemptively.

CONTEXT NEWS

* Barclays on Aug. 29 confirmed that the UK's Serious Fraud Office has launched an investigation into "payments under certain commercial agreements" between the British bank and Qatar Holding.

* On July 27, Barclays revealed that it is at the centre of a probe by the UK Financial Services Authority over its disclosure in relation to "fees payable under certain commercial agreements and whether these may have related to the bank's capital raisings in June and November 2008".

* The British bank, which said at the time that it considers it has met its disclosure obligations, said that the investigation involves four current and former senior employees, including Chris Lucas, group finance director. Former Barclays executive Roger Jenkins is also under investigation, according to a person familiar with the matter.

* The British bank said on June 25, 2008 that it had "entered into an agreement for the provision of advisory services by Qatar Investment Authority to Barclays in the Middle East and agreed to explore opportunities for a co-operative business relationship with SMBC (Japan's Sumitomo Corporation)".

* The disclosure was made as part of the bank's announcement that it had raised 4.5 billion pounds from investors including the Qatar Investment Authority (QIA) and Challenger, a vehicle beneficially owned by Qatar's prime minister.

* On Oct. 31, 2008, Barclays announced plans to raise a further 7.3 billion pounds from investors led by Qatar Holding, Challenger, and Abu Dhabi's Sheikh Mansour. The bank said the fees relating to the transaction amounted to 300 million pounds.

* As part of the fees, Barclays said that Qatar Holding would be paid 66 million pounds "for having arranged certain of the subscriptions in the capital raising" without providing further detail. - Reuters

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own)